Sunday, December 30, 2012

Along with its bond payment troubles,
austerity measures, unemployment, and protests, Greece is experiencing a
scandal over possibly undeclared income and unpaid taxes among its elite. The story
is interesting and confusing, and it involves the press as a key actor.

Some facts (omitting lots of details)
are: In 2010 France handed over to Greece’s finance ministry a list of Swiss accounts
held by Greek citizens. Italy and Spain also received similar lists. Because the money could be undeclared income hidden from tax authorities,
France, Italy, and Spain started investigating whether the owners of the
accounts could show that they had paid tax on it. Greece’s
list held 2,062 names. The head of the Greece’s tax police testified that he
received 10 names to investigate. The rest of the names were not acted on, but
the successor of the finance minister allegedly received a list of 2,059 names.
No further action was taken, until the press started applying pressure. The
existence of the list was published. Then, and this is important, the small
magazine Hot Doc published the names of the individuals on the list.

What happened? First, the journalist behind
Hot Doc, Kostas Vaxevanis, was arrested for violating privacy laws. He was found not guilty and released. Second, many members of the business and
political elite of Greece have been shown or alleged to be on the list. The
most recent revelation involves the difference between the 2,062 names held by
the first finance minister and the 2,059 (allegedly) passed on to the second:
the three missing names are relatives of the first finance minister. So the scandal rolls on, and
is likely to strengthen the anti-austerity protestors, as well as the tax
police’s ability to pursue tax cheats with political connections.

We have come to think of the press in many
different ways: idealist journalists pursued by the government, big corporations
who restructure everything from newsroom to printing operations, and paparazzi photographers
who ambush celebrities’ private occasions and parts. But what is the origin of all this diversity? To answer that question, it is necessary to go
back to the beginning of publishing, as Heather Haveman, Jacob Habinek, and Leo
Goodman have done in a recent article in Administrative Science Quarterly. They
looked at the background of the people starting magazines in the US in the 18th
and 19th century (magazines are a good site to investigate because
they are easier to start than newspapers, and are still - like Hot Doc - an influential part of the press).

What did they find? As in many industries, many
early founders of magazines were from a related industry, in this case printers
or other publishing professionals. But the origin of the press as an outlet for
opinion as much as a profit-making enterprise was clear from the background of
other early founders. They were intellectuals and professionals, a social
background that also matched many of the writers, who were hobbyist writers
expressing opinion in essays or writing poetry and prose. They used
professional writers for getting content, but very few magazine founders were professional writers.

Did the magazine industry become more
professional? In content and presentation it no doubt did. But in ownership the
opposite happened. The proportion of industry professionals among founders declined
dramatically, and the proportion of individuals in other professions (priests
and doctors) as well as writers increased. But more remarkably, they came from
much more modest means. Whereas the typical early magazine founder was highly
educated and often wealthy and well-known before starting the magazine,
the later founders were more likely to be common people – and this is even
though access to education improved between the 18th and 19th
century. Haveman and coauthors conclude that the elite background of the early
magazine founders helped making magazine founding easier, paving the way for
the later ones with fewer resources. It likely also helped usher in some of the
protections that the US press currently enjoys, but did not have when the
magazine industry started. As a result, the press became a place with broad diversity
in founder background and magazine mission.

In the US, as in many other places, the
press isn’t just seen as being a complex mixture of idealists, profit makers,
and celebrity hunters – it really is all of those things. And the current
state of the press is a direct result of its origins.

Sunday, December 16, 2012

I was planning to write a blog entry today, but I lost the spark. I have seen too much news about the tragic school shooting in Newtown,
CT, and it is hard to write about the latest news and research in
management with that fresh in the mind. Instead, let me just give a list
of the top blog posts of last year. The end of the year is a time for reruns
anyway, and this happens to be the 50th blog post for me, so I have
some reason for looking back.

Of course, rankings like these will always be unfair for the newer posts that have not had as much time to accumulate hits. I am guessing the ranking will be different a year from now, but this is what it looks like now.

Sunday, December 9, 2012

We can all recall or imagine the scene
seen in many firms, large or small: Somebody has a child, and the employees are gathering to celebrate the happy occasion. Let's make the scene
more concrete by saying that the person celebrating the birth of a child is the
CEO (chief executive officer), who happens to be a man. Now, if workers are celebrating a CEO becoming a
father, there might be some tensions in the room. Some are especially eager to
congratulate, thinking of it as good career management. Or maybe they are just
especially happy for him, but their coworkers suspect them of doing career
management. Things are never completely easy around CEOs.

If they had known about the research by
Michael Dahl, Cristian L. Dezso, and David Gaddis Ross in Administrative Science Quarterly, there would have been even more tensions in the room.
Chances are that these employees are about to get robbed. Dahl and coauthors looked at the effects of the CEO fathering a child on employee pay, because
it would be a way to explore an interesting tension. On one hand, becoming
a father might change his values to be more helpful to
others. Some CEOs are thought to be short on those values, so a child might
help. On the other hand, becoming a father might instead make the CEO think
more of providing for his family, and so use more company resources on own rewards
rather than employee pay. Either effect would be stronger for the first child.
Either effect could happen unconsciously, but given CEO power over pay could be
really consequential for the employee.

But now I have teased you long enough with
the remark that the employees were about to get robbed, followed by a story of
fatherhood and values. What were the findings? Employee pay changed following
fatherhood – it fell. That’s right, the finding was not that the
growth in employee pay was reduced. It was a drop in employee pay. The effect
was larger for a first child. But, there is more. For employee pay,
it is especially bad if the CEO has a first-born son, and it is especially bad
if the employee is also male. It is less bad if the CEO has a first-born daughter,
and it actually good for pay if the employee is female.

Got that? So the first child does change CEO values. Later ones do too,
but not as much. The CEO becomes more helpful if that child is a daughter, and
seems to especially appreciate female employees more. But at the same time, the
conservation of resources for the family happens too. The CEO conservation of
resources hits male employees especially hard, and especially if the child is
also male. If you described these findings to me, but replaced CEO with “dominant gorilla,” employee with “gorilla tribe member,” and pay with "food" I would totally believe them,
but these are humans working in formal organizations. This is pretty amazing.

Europeans might note that this is just an
indication of how US CEOs can do anything they like to their employees, unlike
in Europe where rules and unionization prevents such mischief. Sorry, but Dahl and
coauthors used Danish data, so all this happened under a set of labor rules made to prevent pay cuts for no good reason.

So what should you do if you are attending a party celebrating the birth of your CEO's child? Have some
extra cake; you might be paying for it later.

Sunday, November 25, 2012

After the first news struck the US media like a shock, the
follow-up has been quiet and predictable. Hostess Brands, the maker of such
classic snacks as Twinkies and Ho Hos (thanks to a European upbringing I have
no idea what I am writing about), has been given permission to enter bankruptcy
proceedings and liquidate its assets by the oddly appropriately named
Judge Drain. That means job losses of 18,500 jobs and a search for buyers for its
30 or so brands and many production plants, distribution centers, and other assets.

The opportunistic hoarding and eBay selling of Hostess snack
foods has subsided as people seem to be getting the idea that some
other maker will likely take them over and continue making them. Yes, you can
bid on eBay for a $200 box of Twinkies or a $50 box of Ho Hos (are Twinkies so much
better?), but nobody is doing it. In fact, the bids are on boxes below $5.
There is a support group for Twinkies on Facebook, but I am having difficulty determining
whether it is a spoof.

Except for the true addict, the more interesting issue is
how a maker of goods that seem to ignite so much passion could fail so quickly.
The story is complicated and involves a botched Chapter 11 restructuring that
left the firm with more debt than before (they are supposed to do the
opposite), as well as two unions with opposite ideas of whether the firm could
survive a strike. The Teamsters, who thought it could not, were right; the
bakers' union, who called for a strike, were wrong. But the really interesting
part is that a very contentious issue in the labor negotiations between the
management and the unions was an increase in the employee-paid part of the
healthcare cost and restrictions on pension payouts. Together, these reduced the benefits employees would get from Hostess.

Such changes are actually occurring in many Fortune 500
companies, according to research by Forrest Briscoe and Chad Murphy in
Administrative Science Quarterly. Such cuts were originally made quite publicly
after some firms discovered that their pension and benefit liabilities were
large, and sought to reduce them as a cost-cutting measure. However, negative
media coverage resulted, leading to reputational consequences, pressure from
interest groups, and labor unrest like what Hostess experienced. As a result of
these reactions, the diffusion of transparent cuts quickly slowed down. Instead
of public and transparent cuts, firms started implementing more obscure
spending caps that had the same effects on their costs, but were much harder
for employees and media to understand and react to. These spread rapidly, in
part as a result of a few consulting firms advising their clients how to
implement these obscure benefit-cutting practices.

The result was diffusion by stealth. This is so clearly the
opposite of regular diffusion processes, where more information leads to faster
spread. The reason for the reversal is obvious. The managers in charge of these
changes were fully aware that they were adopting unpopular, reviled practices,
and would rather go under the radar than let it the consequences of their
decisions become known. Which raises the question: do you know if your pension
or benefits has been cut recently? If you work for a major corporation, the
chances that it has happened are not so small that they can be overlooked.

Monday, November 19, 2012

In 1857, 142 regiments of the
East India Company's Bengal Native Army in India mutinied against their
commanders, leading to one of the most serious military confrontations between
Indians and the British colonial rule until its dissolution. In 1989,
demonstrations occurred throughout East Germany, including weekly demonstration
marches from the Nikolai Church to the Karl Marx Square in Leipzig. Starting at
the end of 2010, the Arab Spring has in many nations revolved around a weekly
cycle of protests that culminate after Friday prayer.

What do these events have in
common? Hayagreeva Rao and Sunasir Dutta have published an article in
Administrative Science Quarterly showing that religious festivals were the key
trigger of the Bengal Army mutiny. This was because mutiny, which is a
collective act of disobedience, involves enormous risk for every participant.
It will only be attempted if each one is certain that the others also want to
join. That creates a coordination problem. Under normal circumstances, army
discipline will make a mutiny impossible, but the religious festivals allowed a
"free space" for the soldiers to mix with each other and locals. They could
also express opinions and hear others, and could understand that their own
resentment was shared. For the Bengal Army, the resentment was around cultural
and religious threats from British rule. In addition, there was a specific
rumor that they would be supplied with a new rifle that used ammunition that
was greased with fat from pigs and beef, a gross violation of religious norms.
By itself, the rumor did not start the mutiny, but when combined with religious
festivals it did.

And that brings us to the Berlin
Wall and the Arab Spring. Just as the soldiers of the Bengal army lived in an
army that was organized to maintain discipline and prevent mutinies – it even
employed informants and spies – so did East German and Arab activists live
inside states organized to prevent uprisings. East Germans had reason to
protest for a long time, but organized repression made it difficult. In order
to protest, it was necessary to solve the coordination problem of learning
whether others also shared the same resentments and were also willing to risk
protesting. The marches in Leipzig were astutely organized as peace prayers, which
were then allowed to morph into nonviolent protests. Similarly, in many
nations, Arab Spring protests took advantage of the Mosques as a natural
assembly points and the Friday prayer as the most important prayer of the week.

In other nations with stronger secular anti-government movements, the "free space" was created
differently. Instead of using a specific day and time, the protesters captured
a specific place, like the Tahrir Square in Cairo, Egypt. This is the same
strategy used by the "Occupy Wall Street" movement. An interesting feature of
this strategy is that constant occupation of a specific location fits the
staffing patterns of the government much better because it pits the usual
full-time security force against full-time (and presumably scarce) activists.
The protest peaks generated by religious free spaces
overwhelm security forces by a mass of full- and part-time activists in a
short time window. The difference in the unemployment rates of Cairo and Manhattan
gives a clue to why the Egyptian movement had more staying power than Occupy
Wall Street: there were more full-time activists available in Cairo.

Rao and Dutta's key point is that
insurgencies are ultimately about the ability to organize and coordinate, just
like normal organizations are. The special feature of movements like the ones
mentioned here is that they are "Organizational Weapons of the Weak," used
against those who are usually better organized and with greater control of
resources. That makes them rare and interesting examples of creating organized
behavior out of nearly nothing.

Saturday, November 10, 2012

Earlier this year Sony took full control
over its troubled mobile phone joint venture Sony Ericsson, renaming it Sony
Mobile. Taking control is the first step of a turnaround strategy, and the
initial moves have already been made. There have been cuts in the workforce,
and the old non-smartphones have been cut from the product lineup. Closer
integration with the handset business music and gaming assets services has
been put into place. Of course, all this just puts Sony on the starting line
with any other modern handset maker, and does not create a recipe for winning. If
you look at recent breakdowns of worldwide handset markets shares, you will
find Sony in the category of - - “Others.” Clearly they have some way to go.

Sony has a long tradition of using design
and innovation to fight competitive battles, and their new line of Xperia
smartphones shows that the design part is working already. They are neat. But
that, too, is so very common these days in mobile phones. How about innovation?
Sony has a tradition for that. And, it would be typical of firms that have
fallen behind their management’s aspirations for performance to increase the
pace of innovation in order to turn the tables on the competition. Much
research, including my own, has shown that firms that fall behind prefer to
take the risky path of launching many products, and often innovative ones, in
order to catch up.

But for Sony Mobile there is the complication
that it is the subsidiary of Sony Corp., a conglomerate that has its hands full
trying to catch up with competitors across a range of businesses. Will this
make it more or less aggressive in its responses? Recent research by Vibha Gaba
and John Joseph suggests that it will become less aggressive: While a firm or
subsidiary that has low performance will compete more aggressively, being the
subsidiary of a conglomerate with low performance leads to more caution. A
likely reason is that the corporate owner is less focused on competition in the
market place through product launches, and instead starts conserving resources.
But that focus on resource conservation undercuts the subsidiaries’ wish to
start a comeback from their weak competitive position. So here we have another
reason why the multi-business corporation may be a less agile competitor than
the single-business corporation: its business-level and corporate-level reactions
to low performance are opposite! It is out of synch with itself.

The problem must be especially interesting
for Sony Mobile, for two reasons. The first is that Gaba and Joseph did their
research on the mobile handset industry, so Sony Ericsson is in the data they
analyzed. The second is that one of the newer products in the Xperia smartphone
is an agent 007 smartphone. I have not seen the movie, so I am not sure what
that phone does. I am slightly scared by the prospect of people around me
carrying it. But surely, if Sony Mobile can make the phone for somebody who so
regularly flouts M’s rules, Sony Mobile can also find a way to flout Sony Corp’s
limitations on how they spend their money.